Should I get a second mortgage or heloc?

May 2025 4 MIN READ

Adding a 2nd mortgage to your current mortgage can be a great option for many reasons. It gives you the ability to tap the equity in your home without touching the first mortgage – which might be a very low rate. Normally when doing a cash-out refinance you have to overwrite the first mortgage and potentially lose a lower rate. With 2nd mortgages however, you are able to avoid doing this and still tap into the equity of the home. There are two 2nd mortgages available, and each has pros and cons.

HELOC – Home equity line of credit. This is the most popular option because it provides the most flexibility and usually has no closing costs. The biggest drawback on this is the rate is fixed only for a short teaser period (currently Leader offers 5.99%* for 6 months) then the rate is set at prime (prime is currently 7.00%*). After the fixed 1-year period the rate is going to adjust based on whatever the prime rate does.

The Payment with a HELOC is interest only for 10 years and then it becomes a fixed payment for 15 years at whatever the remaining balance is from the 10-year draw period. Interest-only payment is nice for some borrowers because it’s a lower payment than a standard principal and interest. You also only pay on what you draw – so if you take a heloc for 100k but you only use 10k you only pay interest on the 10k. You still have the ability to take out the extra 90k at any time when needed. The bank gives you a checkbook with which you can withdraw the funds at a moment's notice.

Fixed 2nd loan. A fixed 2nd is very similar to a 30-year fixed primary loan except that it is added on top of the first mortgage and as a result usually has a higher rate. The bank also charges closing costs for this product and the payment is principal and interest. This loan doesn’t have much flexibility – you simply take a lump sum of money at closing, and you make monthly mortgage payments on it until its gone. If you wanted to get more money once you pay it down, you would need to do a new 2nd mortgage. The big benefit to this is that the rate is fixed for the length of the loan.

^{*Annual Percentage Rate (APR) will not increase during the first six months; following expiration of initial term, rate will adjust on a monthly basis to the current Prime Rate as published by the Wall Street Journal, subject to a floor APR of 5.00% and a maximum APR of 18.00%. Because the Prime Rate may change over time, the Fully Indexed Rate and APR may also change during the referenced term. Please note that if the indexed interest rate increases, Fully Indexed Rate and APR will also increase. Quoted Prime Rate of 7.00% current as of 4 December, 2025 and subject to change without notice. Minimum loan amount $25,000. Maximum loan amount $400,000 for six-month fixed option.80% Max CLTV for purchase, rate term refinances or cash-out refinances. Monthly payments during initial ten-year draw period will be interest only; payments will adjust to require fully amortizing principal payments in addition to accrued interest during the subsequent 15-year repayment period (total term of line is 25 years). Rate quoted are available for primary residences in Massachusetts only; for information on products available outside of Massachusetts or for other property types, please contact a Leader Bank representative. Third party fees to be paid by borrower may range between $0.00 and $1,100.00. If in a Trust a $300 Trust Review Fee applies. $500 early termination fee if less than 2 Years. $450 processing fee will be assessed against your line of credit if you fail to maintain for three months a daily balance of the lesser of (a) your maximum line amount or (b) $30,000.00, and your amount of available credit will be reduced accordingly. Rate quoted requires sign up for automatic payments from a Leader Bank checking account; otherwise the initial introductory rate, APRs, margin and floor rate quoted above will be 0.25% higher. Homeowners insurance and full appraisal required. Credit approval required; other restrictions may apply. Contact a Leader Bank representative for complete details.}